Decipher the Demonetisation

Saturday, 19 August 2017

On 18th August, Ministry
of Finance issued a clarification
about number of tax payers added post-demonetisation, hoping to set at rest the confusion – and
skepticism – that had resulted from four different numbers being quoted by the
prime minister, the finance minister, the Economic Survey and the Central Board
of Direct Taxes.

Of course, these numbers of 56 lakhs, 5.4 lakhs, 91 lakhs and 33 lakhs
as the new tax payers are quite confusing and perplexing. Finally the press release
confessed that these numbers denote nothing but “different period and different
type of taxpayers”. The maze that the Government has laid is literally tread
for any factual unbiased analysis and comparison of these numbers. Even then, let me try to decode this puzzle.

Monday, 14 August 2017

On 8th August Morning, most of our newspapers,
both national as well as regional ones carried big headlines about the giant leap
in the income tax returns received as well as the increase in advance direct
tax collections. The media has attributed this huge achievement to the
demonetisation executed by the Government, exactly 9 months before on 8th
November 2016. Finally, it turned out to be that demonetisation started to reap
its benefits to the nation. Naturally the apologists of demonetisation, started
to cheer again after a long gap and these news are widely shared over the
social media.

But the fact-checkerin me became curious with this claim of 24% jump in the number
of returns filed. The figure of “2.82 crore returns filed in this assessment
year” does not look so huge because I have delved into these data 3 months back
for doing an article “Why Duplicate
PAN Cards Are Not as Big an Issue as the Modi Government Claims”. Numbers used to stay in my mind,
so it came to my memory that there was a Parliament question asked about “the number of returns filed”. I was sure that the number is very close
to the figure of 2.82 crores, so this 24% hike looks unbelievable.

Wednesday, 11 January 2017

Our Prime Minister on 8/11/2016 when he announced the
demonetisation of high value denominations, told to the nation that:

“Terrorism is a frightening threat. So
many have lost their lives because of it. But have you ever thought about how
these terrorists get their money? Enemies from across the border run their
operations using fake currency notes. This has been going on for years. Many
times, those using fake five hundred and thousand rupee notes have been caught
and many such notes have been seized.”

Demonetisation announced by the Government is welcomed by many Indians since they viewed it as a panacea for all the ills like black money, terrorism abetted by the fake
currency, etc. There were a lot of Indians believed that there are lakhs of crores of black money and fake currency in the system. In the
initial weeks of demonetisation, a narrative sold by the evangelists of
demonetisation was that black moeny and fake currency (Fake Indian Currency Note – FICN) are so rife
and argued that it is almost 30-40% of the total currency in circulation.
RBI data shows that as on 4/11/2016, the currency in circulation was ₹17.975
Lakh crores. We have later informed in the Parliament that out of this 86%, ie,
₹15.44 Lakh crores are of high denomination notes of ₹500 and ₹1000. So many believed that the quantity of fake currency is anywhere between 4-6 lakh crores!FICN Estimates

Now let’s
examine the quantity of FICN in the currency in circulation from Government's own database. Minster of State
for Finance disclosed in the Parliament (Lok
Sabha, Unstarred Question No.3285 05.08.2016) that:

“A study on Fake Indian Currency Notes
(FICN) issues, including estimation of FICN in circulation, has been undertaken
by Statistical Institute (ISI), Kolkata under the overall supervision of
National Investigation Agency (NIA). As per the study, the face value of FICN
in circulation was found to be about Rs. 400 crores. It was found the value
remained constant for the last 4 years.”

Yes..the Government's own agencies estimated the quantity of FICN as just ₹400 crores, not even the amount run in to thousand of crores, forget the lakh crores propagated. This ₹400 crores is only 0.02% of the currency in circulation.Though it is a small quantity, FICN is being used for various subversive activities such as espionage, smuggling of arms, drugs and other contraband in India. As per the NIA probe, which has a Terror Funding and Fake Currency Cell, Pakistan is the major supplier of FICN in India.

Wednesday, 21 December 2016

High denomination notes of ₹500 & ₹1000, which is 86.4% of
the total currency in circulation ceased to be legal tender due to the
demonetisation. RBI denotes these demonetised notes as “Specified Bank Notes” (SBN). As per RBI Annual Report
2015-2016, as of 31/03/2016, the value of the total SBN is ₹14.18 lakh crores. Volume wise it consists of 15707
million ₹500 notes and 6326 million ₹1000 notes, ie, a total of 22033 million notes. Meanwhile, the total currency in circulation value wise increased to ₹17.975 Lakh crores (4/11/2016) from ₹16.415
lakh crores (31/03/2016).

Exact information of the
amount of SBN as on 8/11/16 is now in public domain, thanks to a question-answer in the Rajya Sabha, which shows
17165 million pieces of ₹500 (₹8.582 lakh crores)and 6858 million pieces of ₹1000
(₹6.858 lakh crores) in circulation (Total Value: ₹15.44 lakh crores Total
Volume:24023 million pieces) [So my assumptions in my earlier post of value of ₹15.5 lakh crores and volume of 24000 million is almost in the target]. To print and replace 24023 million (24.023 billion) notes is an enormous challenge
considering this sheer volume of notes to be printed and capacity of our printing presses.

Saturday, 17 December 2016

On 8/11/2016 around 8.30 PM, our
Prime Minister made a theatrical announcement through the television channels that:

“To break the grip
of corruption and black money, we have decided that the five hundred rupee and
thousand rupee currency notes presently in use will no longer be legal tender
from midnight tonight, that is 8th November 2016. This means that these notes
will not be acceptable for transactions from midnight onwards. The five hundred
and thousand rupee notes hoarded by anti-national and anti-social elements will
become just worthless pieces of paper. The rights and the interests of honest,
hard-working people will be fully protected. Let me assure you that notes of
one hundred, fifty, twenty, ten, five, two and one rupee and all coins will
remain legal tender and will not be affected.”

After two days of this announcement, I exchanged couple of ₹500 & ₹1000 notes at a bank counter. In
return, I received two new pink ₹2000 notes. When I tried to exchange these new pink notes for change, I realised that there was hardly change for that and people are holding the lower denomination notes as a precious commodity. The next lower denomination available for change is ₹100
note. That means you need 20 nos. of ₹100 note to get change for the new ₹2000
note. Due to scarcity of change, I soon realised that the
lower denominations notes in the system are not able to meet the liquidity demand.

This was the
reason for me to visit the website of Reserve Bank of India (RBI) to find
the distribution of each denomination notes existing in the system. Each year,
RBI, in its Annual Report publishes the statistics of the total currency in
circulation by March end; and information is provided denomination-wise. Also,
every week RBI publishes the total currency in circulation. However, this data
is limited to the total currency in circulation and
not sharing denomination-wise distribution as in the annual report. The table below is reproduced from the RBI
Annual Report of 2015-16.

Before 8/11/2016, I seldom
bothered about currency or RBI and not used to read anything related to them. Yep,
that day, when our Prime Minister came to the TV channels around 8.30 PM and
made that theatrical announcement, with all his trademark gesticulations and dramatic
voice modulations, to demonetize ₹500 & ₹1000 notes and introduced ₹2000
note as a panacea for eliminating the hoarding and black money.